May inflation climbs 2.62% on food, fuel prices

Annual target kept at 2-2.8 per cent despite uptrend in CPI

Inflation gushed 2.62 per cent last month, the most in 14 months, due to rising food and fuel prices against the baht's depreciation, the Commerce Ministry reported yesterday.

Despite the climbing trend of the consumer price index (CPI), the Commerce Ministry looks for more efficiency in cost of living management by the National Council for Peace and Order (NCPO) and has left its inflation target at 2-2.8 per cent this year.

The lowering of the liquefied petroleum gas price for households will help reduce inflation by 0.03 percentage points this year. The stable diesel oil price will also lower inflation by 0.46 percentage point this year.

"Inflation is expected to grow slightly this year from the rising prices of food and fuel. But it should not increase a lot as the NCPO will continue launching measures to maintain the cost of living amid the recovering economy in the country," said Amparwon Pichalai, an adviser to the ministry.

In the first five months of the year, inflation was up 2.21 per cent year on year. The ministry forecasts inflation in the first half of the year at 2.25 per cent, while the CPI would increase 2.4-2.6 per cent in the second half of the year.

Inflation is expected to continue heating up this year as consumers will be in a better mood to spend their money after farmers got paid under the rice-pledging scheme. However, inflation will not go too high as the ministry is still closely monitoring goods prices and will not allow them to increase unreasonably.

But some prices, particularly for fuel and goods that rely on imports, may need to rise on the stronger trend of the baht's depreciation.

In May alone, the price of fuel shot up 5.7 per cent on year and 3.5 per cent on month. Prices of food and beverages increased 4.4 per cent on year and 4.3 per cent on month. Prices of non-food and beverage items, such as garments, rent, transportation and communications increased 1.68 per cent on year and 1.14 per cent on month.

Core inflation, which excludes volatile food and energy prices, inched up 1.75 per cent on year, but only 0.13 per cent on month.

Core inflation for the whole year came in at 1.4 per cent, well within the Bank of Thailand's target of 0.5-3 per cent this year.

According to Reuters, analysts believe the central bank would stand pat at its next policy review on June 18 as it weighs the dilemma of rising inflation and a slowing economy. The new military government faces the task of reviving an economy that shrank in the first quarter after months of political unrest.

"As inflation is going higher and the new government is able to push ahead economic measures, there is no need for the central bank to cut rates further, maybe all year," said Sarun Sunansathaporn, an economist at Tisco Securities.

"But uncertainty remains high, so it is unlikely to rush to raise interest rates as well," he added.

The central bank has forecast headline inflation at 2.5 per cent this year and core inflation at 1.5 per cent. It is scheduled to release its new economic forecasts on June 27.